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Earlier this month, at the third annual Public Finance Forum, the Center for Financial Markets highlighted areas of public finance that intersect with innovations in financial technology. The forum included discussions about the application of blockchain technology to aid in grid sustainability, the role of emerging tech like AI, and the international FinTech regulatory environment.
Nicole Valentine, FinTech director, moderated a session on blockchain technology as a component of public finfrastructure (the intersection of finance and infrastructure), “Rethinking Blockchain: Building Sustainable Public Finfrastructure.” The session explored how blockchain should be understood in the context of technological trends, sustainable blockchain operations, and unexpected emerging public use cases for Web3.
Jaime Leverton, CEO of Hut 8 Mining, stressed that while recent headlines are dominated by scandal, the underlying blockchain technology is not at fault. Leverton discussed the unique potential of Bitcoin mining to help capture what would otherwise be wasted energy and promote grid stability. She cited Hut 8’s relationship with the utility providers in Medicine Hat, Alberta, where the company can rapidly modulate its industrial scale power consumption based on fluctuating grid demand. Leverton also highlighted technologies that enable Bitcoin mining rigs to capture and monetize energy from flair gas, waste methane, and landfill waste.
Michael Arrington, CEO of Arrington Capital, discussed his investment philosophy as it relates to the digital assets industry. He sees a higher percentage of companies come across his desk that are investable as the quality of the players increases. Arrington said he was a believer in the technology’s potential to service the unbanked through decentralized protocols. He hoped that the market would soon realize that decentralized finance (DeFi) protocols promising 20 percent returns would be seen as unsustainable. Arrington emphasized that there could be real opportunities to generate sustainable yield with DeFi instruments like staking.
Arrington also spoke to emerging blockchain applications for data privacy, digital identity, and credit scoring. He suggested that policymakers adopt the same regulatory approach that took place in the '90s, with respect to the internet. He called for clear standards and an end to regulation by enforcement.
Osho Jha, co-founder and CEO of dClimate, discussed the potential applications for blockchain for data storage and the value of immutable ledgers as they related to climate change. Jha shared dClimate’s plans to record Earth’s climate record on the blockchain. Taking data like wind speed, temperature, and carbon emissions, dClimate builds institutional-grade investment products for insurance, renewables, and carbon markets.
Looking to the future, Jha sees innovation coming from companies that are building products where the end-user never realizes that they are interacting with a blockchain. For example, smart contracts that rely on immutable chains of weather data could instantly trigger insurance payouts. Blockchains could enable better verifiable carbon offsets for secondary markets. Jha also discussed how blockchain could incentivize the upkeep of public goods.
Other sessions touched on a variety of topics in FinTech. In “A Conversation with Economic Secretary to the Treasury Andrew Griffith MP, HM Treasury, United Kingdom,” Griffith discussed the history of the UK as a FinTech hub at the forefront of regulatory innovations like open banking. The session also touched on the UK government’s efforts to find regulatory solutions to the emerging crypto industry. The panel “Forecasting the Next Waves of Change” discussed the evolving role of AI as a public good given the recent advancements from platforms like OpenAI’s ChatGPT, the geostrategic concerns surrounding global semiconductor manufacturing, and the changing American labor force. View all the public sessions from the Milken Institute Public Finance Forum on demand.
The past year was a tumultuous one for the cryptocurrency industry. The fall of Terra Luna wiped out algorithmic stablecoins as an asset class. FTX’s dramatic meltdown has dragged down other affiliated funds and exchanges with them. The ripple effects have spurred layoffs throughout the sector, which is now facing a crisis of confidence from consumers, governments, and investors. Valentine commented on the policy environment that will likely shape legislation this year in an article in Roll Call, “After a Year of Collapses, Cryptocurrency’s Future in the Balance.”
Valentine noted that despite the recent difficulties, “I do think that there still will be dinner table conversations around crypto. For one thing, people still have a fear of missing out ... We should be asking ourselves questions about how we’re developing and building this industry. I don’t see it dying, and I don’t see it losing its cultural interest at this point.”
The new chairman of the House Financial Services Committee, Representative Patrick McHenry, has established a new subcommittee headed by Representative French Hill on Digital Assets, Financial Technology, and Inclusion. Politico reports that this committee shows the new leadership is making legislating for crypto a priority. Hill has been active in digital asset policy over the past few years, contributing to discussions on an American Central Bank Digital Currency.
The subcommittee will have the mandate to provide clear rules of the road among federal regulators for the digital asset ecosystem, develop policies that promote financial technology to reach underserved communities, and identify best practices and policies that continue to strengthen diversity and inclusion in the digital asset ecosystem.
Looking back on 2022, the FinTech program highlighted some new projects and innovations that advance financial inclusion, expand access to capital, and facilitate transparency and compliance.
Stablecoin is one area of crypto where new use cases emerged this year. Despite crypto’s promise of secure, instantaneous global transactions, a serious hurdle to the adoption of crypto has been the price volatility of coins. Stablecoin attempts to solve the volatility problem in cryptocurrency by directly pegging coins to a fiat currency. Last year, we saw stablecoin move beyond its origins as a volatility-hedged store of value for traders, as issuers like Circle began to use stablecoins to facilitate international payments between institutions.
Higlobe is another company innovating traditional international payment transfer services with asset-backed stablecoin for instant settlement. Higlobe provided overseas customers with a US-receiving bank account and zero-fee transfers back to their home country. Higlobe’s service uses a fiat-in, fiat-out, non-speculative environment where the end-user never touches stablecoin. This combination of traditional banking with a modern, distributed ledger-based solution allows for the safe, speedy delivery of funds and the elimination of transaction fees. For a remote worker, this could lead to thousands of dollars saved per year as traditional international payment transfer services charge between 1 and 6 percent through a combination of fees and unfavorable exchange rates.
Traditional FinTechs have also made strides in facilitating cross-border money movement. Daba, an Atlanta-based startup, built an online platform to facilitate the flow of investments into Sub-Saharan African economies. The platform is reimagining how individual investors think of risk in emerging markets that are hungry for capital. Daba achieves this with a single, consolidated platform that provides tools, insight, and risk assessment to investors on the African continent.
GoodDollar is a community-driven project that leverages DeFi and has been supported by eToro, a social trading and multi-asset investment company, as part of its corporate social responsibility initiatives. It is the largest universal basic income project in the world and currently distributes digital money to over 50,000 people in more than 180 countries every day. Primarily used by individuals in emerging markets from households making less than US$5,000 a year, GoodDollar is used peer-to-peer as a global community currency, augmenting its members’ purchasing power and enabling them to collaborate among themselves and learn the fundamentals of crypto financial education in a community. GoodDollar acts as an “on-ramp” to a larger, emerging world of DeFi services and offers access to basic financial services such as savings, global payments, and credit in a new model without middlemen. GoodDollar is fully open-source with a mission to deliver digital basic income and provide its technology infrastructure as a public good, accessible to all.